Public Bill Committee

[Sir Edward Leigh in the Chair]
Written evidence to be reported to the House
LAA 04 Transparency International UK

Clause 7  - Appointment of local auditor

Amendment made: 14, in clause7,page5,line29, leave out:
‘an auditor (a “local auditor”)’
and insert ‘a local auditor’.—(Brandon Lewis.)

Andy Sawford: I beg to move amendment 92, in clause7,page5,line39,after ‘auditor’, insert:
‘except where the auditor has been appointed for two terms served consecutively.’.

Edward Leigh: With this it will be convenient to discuss the following:
Amendment 93, in clause7,page6,line19,at end add—
‘(9) The Secretary of State may by regulations—
(a) provide for the appointment, by a person specified by the Secretary of State, of an auditor in relation to the audit of the accounts of a relevant authority;
(b) make provision about the procedure for specifying a person and for a person’s specification to come to an end in specified circumstances;
(c) make provision about the consequences of a person’s specification coming to an end, including for the exercise of functions by the Secretary of State and the transfer of the person’s rights and liabilities arising by virtue of the regulations to the Secretary of State or another specified person;
(d) confer functions on a specified person, including power to specify a scale or scales of fees to be payable by relevant authorities to which arrangements within paragraph (a) apply;
(e) require a specified person to consult relevant authorities, relevant authorities of a specified description or representatives of relevant authorities before specifying a scale or scales of fees.
(10) Regulations under subsection (9) may, in particular—
(a) make provision about the relevant authorities to which arrangements within subsection (9)(a) apply, including provision for them to apply to an authority that has opted into them or has not opted out of them;
(b) make provision about the procedure by which an authority may opt into or out of those arrangements;
(c) make provision about the administration of those arrangements, including for the making of payments in specified circumstances by the relevant authorities to which they apply to a fund of a specified kind for the purposes of meeting auditors’ costs of a specified kind.’.
Government amendments 62 and 63.
Government new clause 1—Appointment of auditor by specified person.
Clause stand part.

Andy Sawford: It is a pleasure to be here under your chairmanship again, Sir Edward. I start by thanking the Minister for the helpful letter he sent me further to Tuesday’s sittings. I assure him that we will look at that consultation—indeed, my hon. Friend the Member for City of Durham will return to such health service issues at a later stage.
As the Minister and hon. Members will be aware, the amendment follows a debate in the Lords. It was led by my noble Friend Lord Beecham, who proposed an amendment to limit the appointment of auditors to a single five-year term. His argument was twofold. First, he questioned whether the audit market was healthy and competitive. Secondly, he made a crucial point about the independent nature of audit and whether that could be assisted by a refresh of auditors every five years, so that a fresh pair of eyes would be on the local authorities’ books.
My noble Friend received substantial reassurances from Baroness Hanham, who was replying for the Government in the Lords, although she did note the Competition Commission report on the need for mandatory auditor rotation. Although my noble Friend was not entirely satisfied, he withdrew the amendment with a view to further discussions today.
We have decided to table an amendment that would limit the terms of appointment to no more than two consecutive terms. We reflected on the reasonable assurances given by the Minister in the House of Lords, but we are still concerned about the relationship with the auditor and the operation of the market.
The auditor should be independent. Independent audit of local government and other local bodies responsible for public funds has existed in England for more than 150 years. The District Auditors’ Society emerged in 1846, followed by the District Auditors Act 1879. Over those 150 years, the principles of public audit and the ways in which that differs from private sector audit have been established, including by the Public Audit Forum in 1998 and Lord Sharman’s 2001 report.
The first and most important principle of public audit is that auditors are independent of the audited body. We will discuss later the way in which the Government seek to safeguard that independence. Views are mixed, but the Government have considered that range of views and have, for example, set out arrangements for independent audit panels as one way to safeguard independence. Later, we will debate how effectively they will be able to do that, but one issue on independence is the relationship between the firm providing the audit and the local authority.
That relationship is partly safeguarded by exempting individuals who may have a conflict of interest from being involved in appointing the auditor. However, in practice, once the auditor is appointed, those working relationships need to be formed. In fact, for effective audit, it is a good thing for there to be a working relationship between the local authority’s audit committee, the finance officer and his or her team, the chief executive, the cabinet member with the finance portfolio and the auditors themselves. That is why we consider that after a 10-year period, if consecutive appointment had taken place at the end of the first term, it would be time—

James Morris: I am not an expert in auditing or accounting, but what is the difference between what the hon. Gentleman is describing and what is described in the impact assessment? It says in relation to appointing auditors on a five-yearly basis:
“While the same firm may be re-appointed following competition, the existing ethical standards
will continue to apply, including Ethical Standard 3: long association with audit engagement”.
What is the difference between what the hon. Gentleman is proposing and the existing ethical standards?

Andy Sawford: I thank the hon. Gentleman, who makes an insightful and helpful contribution. He is right to point out that those reassurances are offered in the impact assessment. However, as with many of our amendments, where there is broad agreement in principle we seek to make clear the intent behind the Bill.
We completely endorse the principle, and that is why we think it right to set out a 10-year term. This is not the hard position adopted in the House of Lords: that a fixed five-year term should be it. A 10-year term might allow the firm to bid again, and it mightmake a very competitive bid; we would not want to exclude it. As Baroness Hanham said, there could be a downside to excluding a firm from bidding again, although we think that to continue the relationship to 15 years would be too long an association. The hon. Gentleman makes an important and helpful point. I hope that he will consider supporting our amendment to limit the relationship to 10 years, so that we can be absolutely sure that an association will not develop in a way that is, frankly, unhealthy.
When my noble Friend Lord Beecham spoke to his different amendment in the House of Lords, he referred to such a relationship being “too cosy”. While we would not want to impugn the genuine motives of either the auditors or the local authority in seeking to develop a good working relationship, we can all see that a situation might develop where, over 10 years, those relationships become a little too close in some cases.
There might be turnover in the personnel of an audit firm and the relationships could be refreshed in that way. There might be an effective audit committee and an independent audit panel at the time of the reappointment after five years that takes real care to safeguard independence. However, we cannot know for certain, under the Bill as it stands, that the relationship will not have become too close in years 11, 12, 13, 14 or 15.
There is another point about the fresh pair of eyes. The world of public audit is changing so rapidly; that is my experience, having worked with local councils. Having a fresh pair of eyes after a decade of audit seems a good idea. It will bring probity and fresh approaches to audit and be useful in finding out whether the council or other relevant authority provides real value for money. We all want to make sure that auditors can effectively carry out their role in ensuring value for money.
I shall briefly speak about the other issue that concerned my noble Friend Lord Beecham, to which my hon. Friend the Member for Derby North referred in Tuesday’s sessions. It involves the competitiveness or otherwise of the audit market and the role of the private sector, and how that might develop. The number of firms successfully competing in the public sector audit market is very small: 70% of the local government market has historically been with the Audit Commission and only five other firms have been involved in the remaining 30%. In the example of foundation trusts, only six companies provide audit services.
There is limited choice and competition. We know that from evidence—to the draft Local Audit Bill ad hoc Committee, for example—including factual evidence in both the private sector market, where there is the domination of the big four, and in relation to foundation trusts, a market in which only six companies act.

Duncan Hames: We would also see that domination in the previous arrangements in the large amount of work that was notionally done by the Audit Commission but that was outsourced, in fact, to the very same firms, in the way that the hon. Gentleman describes.

Andy Sawford: I thank the hon. Gentleman for that helpful intervention. We can, of course, look back at the record, whether in the context of the Audit Commission, private sector auditing or foundation trusts, and find ample evidence that we should be concerned that the market is dominated by too few providers.
We have discussed whether we would go about things as the Government are, and whether it is premature to abolish the Audit Commission, but at this stage we all want the Government’s model to work effectively to provide good-value independent auditing. We should all be concerned about securing a lively audit market.
One reason for our amendment about the 10-year period is concern that the lack of competition in the market could mean that, by default, after a period of 10 years an auditor might be the only—or the only viable—provider at a reasonable although not particularly competitive price available to be appointed by a relevant authority.
In some ways, although our 10-year time frame is principally about the independence of the auditor, we hope it will also be a driver to create greater competition in the market, not least because other providers will know that the contract will become available, and will not simply go to the current provider, as so often happens in the private sector. It happened in the case pointed out by the hon. Member for Chippenham—the monopoly of the Audit Commission making the arrangements.
Our approach would create a pressure in the system for greater competition. We will debate later other amendments about, for example, the backstop with the Secretary of State, to make sure that an auditor can be appointed. We are asking the Government to accept that that should be within 10% of the average cost for all auditors.
We hope that in those ways we can drive competition in the market and make it more viable and attractive for new entrants and other bidders, who may not be so active in a region or among a group of relevant authorities, to consider bidding for a contract. They would know that a 10-year term was coming to an end.
Those are the two driving forces behind the amendment. I hope that, given the impact assessment points about long association, the Government will support it. We have thought about reasonable compromise and balance, and have reflected on the House of Lords debate and the possibility that five years would be too short a term. We have tried to set out a good way forward, with principles of independence and good competition that I am sure all hon. Members would support.
Amendment 93 relates to the scheme for councils to opt into national procurement arrangements, and would provide for those arrangements, but I note that Government new clause 1 sets out such arrangements more extensively. We have had the advice of the brilliant Public Bill Office in Parliament, but the Government will have had the benefit of advice from draftsmen in the Department and others concerned with the rest of the Bill.
We therefore broadly welcome the new clause. We welcome the principle of an opt-in arrangement for local authorities for joint national procurement. While the Bill was being considered in the House of Lords, my noble Friends and organisations outside this place concerned with the Bill, such as the Local Government Association, called for amendments to allow councils to continue to procure external audit nationally and thus avoid the need to establish independent appointment panels. Those might for some councils prove too costly and bureaucratic, and it might be impractical for them to ensure that people were available to be members of the panel.
We can all see that a council such as Kent county council, with its large budget, or Birmingham city council, might find competitive the model by which they could appoint directly through an independent panel. There might be many bidders, not least because there will be organisations based in the area or which have a track record of operating there, and the size of the contract may well make it worth companies’ while to put together competitive bids.
We can foresee a different situation, however, for smaller authorities. For example, I represent a two-tier area, and two of the three councils are small borough and district councils; it may not be cost-efficient or practical for them to bring together an independent audit panel. Under the Bill as it previously stood, those authorities could have considered joint arrangements. We support new clause 1 because we hope that it is the Government’s intention to go further than that by creating a national panel.
Modelling suggests that central procurement and appointment would save the public purse more than £200 million over a five-year period, compared with local appointment. The Government’s impact assessment recognises that councils will incur additional compliance costs when they appoint their own auditors, and it estimates those costs at £3.73 million. Given that cost to local authorities, there could be substantial leeway as regards resources that might be available to support the setting up of a national body.
We all want to make good progress in Committee, so in the interests of expediency, I will say to the Minister that I understand from my dialogue with the Local Government Association, and from his assurances to me in private, that the LGA has considered new clause 1 and is content with it, so I do not intend to go into every detail of how the new clause will operate, although I hope that he will explain to the Committee how he envisages it operating.
Will the Minister also give us certain assurances on this issue? For example, the first Opposition amendment we discussed in Committee, amendment 72, asked for this matter to be set out in regulations by the time that the Audit Commission is abolished in 2015; the Government argued that that was unnecessary, but said that instead a dialogue would proceed. Part of the Minister’s argument against the amendment was that it is not yet clear who will provide the framework for the national procurement body, so will he tell us who he envisages providing that? Does he think it will be the Local Government Association?
I intend no mischief at this time, although I may make some at another time, given that Councillor Harry Phibbs’s latest list of ways to save money includes—besides not mowing the grass and getting sheep to do it instead—the idea that councils should leave the Local Government Association. I encourage councils to play their part in the LGA, because as a localist, I think it is important that the local government sector has a strong national voice. The Government looked to the LGA to play an important role in developing the proposals in the Bill and in many other aspects of their programme for local government over recent years, including the Localism Act 2012.
Will the Minister assure us that he will work closely with the LGA, that he will view it as the appropriate and leading body in helping to shape the framework for the new national procurement arrangements, and that those conversations with the LGA will proceed at pace? That will enable councils and other relevant authorities to make an informed decision about whether they will need to establish an independent audit panel prior to the need for renewal of audit in 2017. If a council needs to set up an independent audit panel, it will need to know that some years beforehand, to start to make arrangements.
It is a shame that the Minister would not commit to having this point made clear by 2015, as by then councils will want to know whether the national procurement model will be viable, whether it will work for them, and whether they want to engage with it or set up an independent audit panel. From his conversations, or his officials’ conversations, with the LGA and directly with local government, does he know what proportion of councils have indicated an interest in participating in the national procurement scheme? Anecdotally, I know that there are many, and that members of the LGA, which includes most local authorities, want the option to participate in the scheme. I hope that the Minister will take the scheme forward enthusiastically, rather than reluctantly.
We broadly support new clause 1, although I hope that the Minister will give us some assurances on the issue. We are putting trust in his conversations with local government; we are not privy to those, and have no guarantees on them. I hope that, in a reciprocal spirit, he will see the common-sense approach that we have taken in amendment 92 and commit to supporting the limit of 10 years, so that there is not too long an association between auditors and local authorities.

Chris Williamson: I support the erudite observations of my hon. Friend, who makes a good deal of sense. I hope that the Minister will take on board his comments about reciprocally agreeing to support our sensible amendment on appointing auditors for no more than two terms. That seems entirely reasonable, not least because of the potential for a cosy relationship. My hon. Friend the Member for Corby referred to our noble Friend Lord Beecham using the phrase “too cosy a relationship” when debating the clause in the other place.
It is appropriate to quote from a document produced by Transparency International, which has looked in detail at the Bill and has highlighted a number of concerns. Hopefully, those will be taken on board by the Minister, particularly in his response to our amendment. The document says:
“The critical role of the Audit Commission in detecting and investigating corruption in local authorities, by appointing and supporting independent external auditors, was eloquently described by Lord Scott of Foscote in a December 2001 speech following the Homes for Votes scandal”—
I think I referred to that in an earlier contribution on the Bill. Lord Scott said:
“When detected and exposed it must be expected, or at least it must be hoped, that political corruption will receive its just deserts at the polls. Detection and exposure is, however, often difficult and, where it happens, is usually attributable to determined efforts by political opponents or by investigative journalists or by both in tandem. But, where local government is concerned, there is an additional very important bulwark guarding against misconduct. The Local Government Finance Act 1982…required the annual accounts of a local authority to be audited by an independent auditor appointed by the Audit Commission”.
Lord Scott said that the
“statutory provisions…provided an institutional means whereby political corruption consisting of the use of municipal powers for party political advantage might be detected and cauterized by public exposure.”

Andrew Griffiths: The hon. Gentleman refers to the Westminster homes for votes scandal, which is something that we all have great concerns about. However, does he not agree that the scandal was not exposed by the Audit Commission, but by a private audit company, Touche Ross?

Chris Williamson: I hear the hon. Gentleman’s point, but I believe that the oversight and back-stop of the Audit Commission gave the independent auditor the comfort blanket that it needed to get involved and expose that appalling scandal back in the 1980s. Our concern, and the reason why we believe that the appointment of the auditors under the new arrangements should be for no more than two terms, is to avoid, as my noble Friend Lord Beecham said, too cosy a relationship building up, which might make that kind of exposure less likely. I believe that the circumstances that led to that exposure were made possible by the existence of the overarching Audit Commission.

Andy Sawford: As ever, Government Members’ insight is helpful to us in making our point, which is that it was important that the private sector auditors in the homes-for-votes scandal did not have too cosy a relationship with the local authority, and felt able to provide effective independent scrutiny of it. That speaks to the very point that my hon. Friend is making.

Chris Williamson: My hon. Friend makes a decisive intervention. I hope that we will reach agreement across the Committee on the amendment that he has spoken to so eloquently. The hon. Member for Burton spoke about the scandal relating to Westminster council; I am sure that no Government Members would wish to make it more difficult to expose such abuses in the future.
The Minister and Government Members have talked about alleged savings that will be made as a consequence of their proposal. Those are debatable, but I shall not rehearse the arguments that we advanced on that point. I will, however, refer again to the document produced by Transparency International, which says that any savings that may be made as a consequence of the Government’s proposition should be
“weighed against how much money might be lost through increased fraud and corruption if the new system proves inadequate.”
That speaks precisely to the point that my hon. Friend the Member for Corby made. Clearly, we must make certain that any measures introduced to replace the existing system ensure that appalling situations such as that in Westminster are rooted out or, preferably, prevented.
On the professed savings that may or may not be made, the Chancellor, in his speech on the spending review earlier this year, set out a number of principles, one of which was reform
“to get more from every pound we spend”.
Based on that principle that the Chancellor set out, I am pleased to see—I hope that the Minister will give us an assurance on this point—that Government new clause 1 will ensure that local authorities that want to opt into a national scheme are empowered to do that because of the savings that they believe they can secure in such an arrangement, rather than having to rely on individual arrangements, which seemed to be the Government’s preferred way forward at first.
The Chancellor also said in his statement that
“Local government will have to make further savings”,
and that the Secretary of State for Communities and Local Government was
“a model of lean government”.—[Official Report, 26 June 2013; Vol. 565, c. 303-305.]
If the Communities Secretary is indeed a model of lean government, it would be appropriate to ensure that the limited resources available to local authorities were spent in the wisest way possible, and that measures were not put in place that led to additional, unnecessary, burdensome costs being put on local authorities when they are desperate to find the resources to maintain essential front-line services for the people whom they serve.

Paul Blomfield: My hon. Friend makes a particularly important and pertinent point. Does he not find it ironic that a Government who are appealing so strongly for local authorities to achieve financial savings by sharing services and pooling activities at authority level seem so intent on discouraging a sharing and pooling approach on the procurement of audits?

Chris Williamson: My hon. Friend is absolutely right about this curious state of affairs. We touched on that in our debate on another part of the Bill on Tuesday. My real fear, which I hope that the Minister can allay, is that the Government are applying double standards: it seems to me that one standard applies to the public sector, but a lower one applies when the private sector is involved. Here we might have another case, as my hon. Friend said, to add to the one I mentioned on Tuesday, namely the privatisation of the utility companies leading to consumers being ripped off left, right and centre. As I pointed out then, we do not want the Government, whether by design or by mistake, again to create a system in which a lower standard applies, so effectively establishing a money-making cartel for vested interests in the private sector. That cannot be right. Irrespective of our political differences, surely no Committee member would say that it was right to create a lower standard to facilitate the establishment of a cartel by those with vested interests.

Neil Carmichael: Does the hon. Gentleman agree that localised, more efficient auditing might drive higher standards and better value, which is one way that local government can save more money?

Chris Williamson: To be honest, with the greatest respect, the hon. Gentleman is starting from a false premise. The problem, as my hon. Friend the Member for Corby said, is that the audit market is very limited. It would be different if companies were falling over themselves for the work, as the hon. Member for Stroud suggests would be the ideal. We might be in unison, but the problem is that the market is very limited. Consequently, there is a danger that we might drive out competition and create a money-making cartel for vested interests in the private sector, which I am sure the hon. Gentleman does not want.

Andrew Griffiths: The hon. Gentleman is of course right to question how the Government intend to make efficiency savings and save money—my mother always said that the proof of the pudding was in the eating—but in doing so, should he not congratulate the Minister for the Cabinet Office and Paymaster General, who today announced £5.4 billion of savings, up 73% on last year, which indicates that the Government’s approach to delivering value for money for taxpayers is right?

Chris Williamson: If I may say so, we must be careful not to throw the baby out with the bathwater.

Edward Leigh: Order. We have had enough bad puns about mothers and bathwater. Let us get on with it.

Chris Williamson: I am drawing to a conclusion, but I want to repeat to the Minister some of the comments made by my hon. Friend the Member for Corby. There has been a good deal of resistance to the notion of facilitating a national scheme, but it seems that the Government have listened, which is very welcome. We hope that they will listen more, so that we have a degree of consensus in our developing discussions today, and in subsequent sittings.
Will the Minister provide illumination on how many councils want to participate in a national scheme? I made this point on Second Reading: the anecdotal evidence and representations I have received suggest that smaller local authorities are desperate for the opportunity to participate in the national scheme that my hon. Friend the Member for Corby referred to. I am curious as to why the Minister was initially resistant to a national scheme but now appears to have listed to sense.
It would be instructive for hon. Members if we could be told how many local authorities are interested in participating. Many Government Members represent the rural communities where most of the smaller local authorities are located—the very ones that are under a good deal of pressure to maintain their front-line public services and would benefit from a national scheme. It is key that they have adequate audit arrangements in place, but it is also important that they do not have to pay unnecessarily for audit arrangements, which could take money away from their front-line services and undermine the marketplace in the audit world. I hope that the Minister will clarify that point.

Brandon Lewis: The Government’s amendments are closely related to the amendment of the hon. Member for Corby, as he outlined. They will achieve our shared objectives, as he said, with respect to sector-led collective procurement of audit.
In response to comments from across the Committee, but particularly those from the hon. Members for Corby and for Derby North, there is an issue about understanding where the Government have come from. As I said on Tuesday, our view is that local authorities should be allowed to procure directly. We do not feel it is for us to create another body, because that risks becoming Audit Commission light or Audit Commission version two and we are determined that that will not happen. We listened to the local government sector, which made a case, particularly through the Local Government Association, as the hon. Member for Corby outlined, for the ability to set up a sector-led body through the sector and we think that new clause 1 deals with that.
The purpose of the amendments and new clause is to allow the local public body sector to establish large-scale, collective procurement arrangements. They will give the Government the power to set out a framework for such arrangements and regulations, which will fulfil a commitment made in the other place in response to calls from the local government sector to allow for sector-led collective procurement.
Since making that commitment, the Government have had further discussions with the Local Government Association on potential arrangements and the amendments are built on those. The new clause inserts provisions to allow the sector to establish collective procurement arrangements. Under the new clause, the Government may, by regulation, make provision for certain authorities to have their auditor appointed by an appointing person specified by the Secretary of State. That will allow the Secretary of State to designate a sector-led body as an appointing person and give them the necessary powers and duties to act as a collective procurement body. Going forward, it may be easiest if I refer to the appointing person simply as the sector-led body.
Regulations will set out the process by which authorities can choose to participate in the sector-led arrangements, the process for specifying the sector-led body and the key powers, functions and duties of such a body. That will include, for example, a power to levy fees on opted-in authorities and a corresponding duty on the body to consult before setting those fees.
Amendment 62 provides that the regulations made under the new clause will be subject to the affirmative procedure. The Government also intend to consult publicly on draft regulations before they are made. As we have previously said, any collective procurement arrangements established under those regulations will be voluntary. Local authorities will be able to choose to participate or to make their own appointment locally. It is right that bodies choose what arrangements suit them locally, but I must be clear that the Government will not impose centralised appointment and effectively recreate the Audit Commission.

Mark Pawsey: Does the Minister agree that this is localism in practice? We are giving local authorities the right to choose what is best for their community: either to go it alone with its own contract or to join other authorities to get the best of whatever is more suitable in their area.

Brandon Lewis: My hon. Friend is spot on. That is why, to touch on the point made by the hon. Member for Derby North, it is not for the Government to collect data on which authorities want to join others; it is for the sector to do so, if it thinks necessary. Both authorities that gave evidence during the pre-legislative scrutiny—Oxfordshire and Birmingham, as the hon. Member for Corby mentioned—stated that they were happy to make their own appointments, but we are aware that others may want to go that way. The whole point is that that is a matter for them.

Chris Williamson: I am curious about that. In making fundamental changes, it is incumbent on the Minister and the Government to understand the impact and implication of what they are doing. The Minister says that they do not collect those data, but surely he must have some idea, because his initial proposal might have cost considerably more for many local authorities, which are often those represented by Government Members.

Brandon Lewis: The hon. Gentleman made that point in his speech, but it comes from a false premise or misunderstanding about where the Government stand. To repeat what I said on Tuesday and what I have just said, our position is that it is for local authorities to procure. If they decide to come together, that is a matter for them. We are not setting up and will not set up a central body to do it. Indeed, recent evidence from contracting out shows that the local government sector is already saving about 40%, which completely contradicts his point about costs.

Neil Carmichael: Far from replicating the National Audit Office or any similar body, the measures whose implementation we are discussing will create a competitive market, because smaller contracts will attract more and more small firms to engage with local authorities.

Brandon Lewis: My hon. Friend makes a reasonable point. The market for auditing companies to enter and to offer their services to local authorities does not yet exist as we envisage it, but I hope that it will develop in a way that brings in more competition, which is absolutely our aspiration. However, if the local government sector so wishes, the new clause will give authorities the ability to come together in a manner of their choosing, which we will be happy to facilitate.

Andrew Stunell: Does my hon. Friend agree that this is absolutely the right way to go, in stark contrast to the very centralist approach of the hon. Member for Derby North, who appears to be just as unreconstructed this morning as he was on Tuesday morning?

Brandon Lewis: I thank my right hon. Friend for that helpful intervention, although it is not for me to comment on the construction or otherwise of the hon. Member for Derby North. My right hon. Friend makes the good point that the crux of the Government’s position is not to have a centrally-led, top-down approach. It is for the local government sector to design what it wants.

Andrew Griffiths: We charge local authorities with spending billions of pounds of taxpayers’ money to deliver complex care needs, complicated infrastructure structure projects, help for vulnerable families, and growth and employment opportunities. We trust them with all that, yet the Opposition will not trust them with choosing their own auditors. Why do the Opposition just not trust local government?

Brandon Lewis: My hon. Friend makes a point that has occurred to us on several occasions during this Parliament. I sat on the Localism Public Bill Committee, during which the consistent approach of the Labour party was not to trust local government with devolved powers. We trust local government with them, and we intend to continue to do so.

Chris Williamson: Will the Minister give way?

Brandon Lewis: I will make more progress before I take other interventions, because I do not want to test your patience too far, Sir Edward.
I should make it clear that a framework will be set out in regulations to allow authorities to opt into collective procurement arrangements established by the sector. The regulations will set out a process for the Government to approve an organisation to act as a sector-led body, but they will not establish the body or arrangements for national collective procurement. It will be for the sector to decide whether it wishes to establish an appointment body and to take forward any proposals. If those in the sector come together to develop such proposals, the Government will work constructively to support them. We intend to work closely with the sector and any prospective sector-led body in developing the detail of the regulations, the process for which I have already outlined.
Regulations under the new clause will also be able to modify other parts of the Bill as they apply to authorities that have opted in to the collective procurement arrangements. We intend to use that power to ensure that, where necessary, other provisions reflect the different appointment process for those authorities: for example, authorities that opt in and do not make their own appointment will not need to establish an independent auditor panel.
Amendment 63 makes a minor related change to update the definition of a local auditor in clause 41. It ensures that the definition covers either an auditor appointed by the local authority or one appointed to it by a sector-led body.
Amendment 93 would, it appears, achieve a similar objective to the Government amendments. It would also establish the powers necessary for the Government to enable the sector to put in place collective procurement arrangements for local audit. I have already outlined the Government amendments that will achieve that, and I hope in the light of those amendments that the hon. Member for Corby will not press amendment 93.
Amendment 92, however, addresses a slightly different issue, as the hon. Gentleman outlined. The amendment would prevent an authority from reappointing the same auditor where that auditor has already served two five-year terms; in effect, it would require authorities to change their auditor every 10 years. I understand and am sympathetic to the concern behind the amendment, which is clearly designed to prevent an auditor and an audited body from developing too cosy a relationship. However, I do not think mandatory rotation of auditors is a necessary or proportionate step; in addition, the amendment would in effect reduce competition by taking at least one bidder out of the market. I should make it clear that auditors will still be required to consider whether they need to make a public interest report; nothing will change in that respect. The code of audit practice and guidance provided by the National Audit Office will support auditors in making those decisions. In addition, there are robust protections about appointment and removal of auditors in the Bill, and auditors are subject to ethical standards.

Andy Sawford: My hon. Friends and I are considering whether we wish to press amendment 92 to a vote. One of our concerns is that there is not a requirement in the Bill—this was debated in the Lords, and I cannot see it in the Bill—for local authorities to have a full tendering exercise after five years, organised through the independent audit panel. That is why we are concerned that reappointment by default could lead to too cosy a relationship. Will the Minister comment on that?

Brandon Lewis: The hon. Gentleman must be psychic; I was just about to come to that very point. The Bill requires local bodies to make a new appointment at least every five years. In the vast majority of cases, that will require them to go through a full EU-compliant appointment process, taking advice from their independent auditor panel. That will ensure that authorities regularly review the quality of the audit service and that auditors are appointed through a fair and compliant process. If the incumbent firm is found to be the best candidate through such an open and competitive process, we do not think it right that Government should prevent its reappointment.
In addition, the Financial Reporting Council’s ethical standards already require that key audit staff such as the lead partner are rotated on a regular basis. The Government believe that, along with the other provisions about auditor appointment and removal, the requirements for a new appointment every five years and for the rotation of key audit staff provide sufficient safeguards to ensure the independence of the auditor.

Andy Sawford: I understand the Minister’s point but I fear it is a repetition of the inadequate assurances that were given in the other place. Will he point me to where there is a requirement for a tendering exercise in the Bill? It may be that he plans it to be in regulations but we would prefer it in the Bill. We want to know whether local bodies will go out to the market. He has said that it is likely that a tendering exercise according to European procurement rules will take place, but I cannot see a trigger or indeed a requirement for that in the Bill.

Brandon Lewis: I say to the hon. Gentleman that, based on what we know about current audit fees and assuming that most bodies will enter into five-year contracts—that of course is a separate issue—the vast majority of contracts will be subject to EU procurement rules. In making an appointment, bodies will also have to take advice from their auditor panel, and we can reasonably expect that that would include scrutiny of any decision to reappoint auditors without putting the contract out to tender.
I should also point out that, as the hon. Gentleman outlined earlier and as Baroness Hanham mentioned in the other place, a recent report by the Competition Commission rejected proposals for mandatory auditor rotation for companies’ auditors in favour of what it called “less onerous” measures, such as requiring the audit to be put to tender every 10 years. The report noted that mandatory rotation would actually impose costs on companies, for example, by limiting their choice of auditor. I also understand that the evidence that mandatory rotation improves auditor independence and audit quality is inconclusive at best. With those assurances, I hope the hon. Member for Corby will withdraw the amendment.
 Several hon. Members  rose—

Edward Leigh: The Minister is not giving way.

Andy Sawford: I think that my hon. Friends wanted to probe further into where the requirement for the independent audit panel to go out to a tendering exercise is in the Bill.
The Minister is trying to assure us that in all likelihood local authorities will tender, but there is no clear evidence that the Bill will make that happen. On the contrary, it will be costly, and we all know how hard pressed local authorities are. We will discuss later how the auditor panel will work, its remuneration, the process it will have to follow and its cost. In all likelihood, many authorities that choose independent appointment rather than a national procurement panel will not tender unless they are made to by European procurement rules. We therefore remain concerned about that issue.
I understand the Minister’s point about the Financial Reporting Council and the rotation of the lead auditor. Rotation is important because it brings in a fresh pair of eyes. However, we remain concerned that, after 10 years, the relationship could become too cosy. We are not concerned about the 10-year period itself, but it could become too cosy after 11, 12 or 13 years. Local authorities receive a huge amount of public money to run public services and play an important leadership role in our communities. Therefore, the quality and independence of the audit is important.

Chris Williamson: Would my hon. Friend care to comment on another quotation from Transparency International on the new arrangement? The Minister expressed his reluctance to impose a two-term restriction. Transparency International says:
“When local authorities are able to appoint their own external auditors…the independence of auditors may be compromised by concerns about contract renewal and other non-audit services the firm supplies the local authority with.”
Will my hon. Friend comment on that quote? It concerns me; I am surprised that it does not ring alarm bells for Government Members. Does it ring alarm bells in my hon. Friend’s mind?

Andy Sawford: I thank my hon. Friend for that point. Politicians are sometimes accused of not having experience of the real world that is affected by our legislation, but I ran a small business that was audited and a charity that was subject to stringent rules around the audit process. During the time that I was chief executive, we had a full tendering exercise and replaced our auditor, partly because the new auditor was more price-competitive—that is the crucial point—but also because it was a healthy thing to do. The charity sector advised us that mandatory rotation is healthy, and the Competition Commission, their Lordships, my hon. Friend the Member for Derby North and organisations such as Transparency International share that view. That is a powerful and important point.

Brandon Lewis: Actually, the Competition Commission rejected proposals for mandatory auditor rotation. I agree with the hon. Gentleman because I ran a small business myself that was audited. The hon. Gentleman is making the same point as the Government: he had the choice to make the decision to go out to competitive tender. That is what local authorities may wish to do every five years.

Andy Sawford: I thank the Minister for that point. The change in the relationship with the auditors in my case was necessary because I inherited a set of auditors, I did not have that cosy relationship and I wanted to ensure that there was an independent audit process. There may be all sorts of other reasons why authorities wish to change their auditors. It may be triggered by a change of personnel in the independent audit panel or in the authority itself, and members may suggest that a full tendering exercise needs to take place to refresh the auditors.

Chris Williamson: I am now even more alarmed by the Minister’s intervention. Earlier in the debate, we heard reassurances that Government Members are as concerned as we are about the appalling scandal that occurred in Westminster, but it seems to me that his intervention means that that is much more likely to happen again, because the cosy relationship mentioned by my hon. Friend is likely to come to the fore. Powerful council leaders would not be subject to the necessary level of scrutiny by the auditors because of the cosy relationship that would develop under such an arrangement, and because of the auditors’ fear of losing the contract—they would want to please their masters, because he who pays the piper calls the tune—so I am even more concerned following the Minister’s intervention.

Andy Sawford: I agree with my hon. Friend.

Brandon Lewis: I politely say that I am sure the hon. Gentleman appreciates, having been through the process of working with auditors—he made the point that he has, although the hon. Member for Derby North may not have done so—that they are under a fiduciary duty and have to follow a duty of care. I know that the hon. Member for Derby North is going back 25 years, and he is a little in the past with many of his comments, but as my hon. Friend the Member for Burton has rightly pointed out, independent private sector auditors highlighted the problem in the first place, so to query independent auditors’ fiduciary duties and how they work is to push a little into other realms.

Andy Sawford: If I have given the Minister or any hon. Member the impression that I in any way doubt auditors’ good intentions and the honourable way in which the overwhelming majority of them carry out their work day to day, or the intentions of local authority officers and members around the country or, indeed, those of the Minister in giving us reassurances, I hope he will understand that we are talking about what might happen by default in local authorities in which such a relationship emerges.
Those relationships will not always be because of any bad intent on the part of auditors. For example, having worked with a set of auditors over a period, I have known them go away on maternity leave, come back, share photographs of bringing up their families and tell stories of the trials and tribulations of life, as people do when they seek to build a working relationship. Those things are a healthy part of trying to work closely together, ensuring access to documents and having an open dialogue, and they are a very good thing for a period, but that relationship perhaps becomes too close over time.
There is also the pressure of needing to ensure that the contract is renewed. In many cases, a local authority audit will be so significant that it is the whole of an auditor’s work load. Their whole job might therefore rest on the renewal of their contract by the person whom they now know and with whom they have worked for a decade.

Mark Pawsey: Is not the hon. Gentleman disregarding the effect of local democracy and the fact that many council tax payers take an awful lot of interest in what goes on in a local authority? There are sufficient checks and balances to make the Government’s position secure.

Andy Sawford: The hon. Gentleman is right that local democracy plays an important part. The amendments that we have tabled in relation to transparency will, I hope, enable members of the public to play a vital role. We are giving members of the public, local authorities and auditors a framework in which we can safeguard an independent relationship. I think that we would all agree that that is important, and that those working in this area want such an independent relationship. However, from the examples cited by my hon. Friends and evidence presented to the ad hoc Committee and others about securing independence in the Government’s proposed new framework, hon. Members can see the concern that, in a tiny minority cases—such cases might involve billions of pounds of public money—the audit may not be carried out as independently and effectively as it otherwise might be if there was a refresh of an auditor after a decade.

Chris Williamson: Checks and balances are vital, of course, and the ballot box is one such check or balance. Do there not, however, need to be other checks and balances—the ones to which we are referring—to ensure that the highest levels of probity are observed by elected members when they get into elected office? It is not good enough simply to say, as the hon. Member for Rugby has said, that the electorate can always resort to the ballot box. They can do, but it is important that high standards of probity are upheld and maintained by having other checks and balances in place through an independent audit system.

Andy Sawford: My hon. Friend makes a strong point and has highlighted our concerns.

Andrew Griffiths: Will the hon. Gentleman give way?

Andy Sawford: I will, but I am sure that the hon. Gentleman, like me, the Minister and you, Sir Edward, wants to make progress.

Andrew Griffiths: I have a simple and straightforward question. Will the hon. Gentleman tell the Committee when the Labour party last changed it auditors?

Andy Sawford: I have no idea, but it would be in the interests of any organisation to look at its relationship with its auditors. I am quite sure that the hon. Gentleman could find that out and bring the information back to me and the Committee. We are discussing publicly funded public bodies, so the hon. Gentleman will agree that the circumstances are different. We are dealing with public money.
I sense some enthusiasm from my colleagues to test the will of the Committee on this point. On reflection, if the Minister could commit to providing information before Report on how many authorities will be subject to EU rules, which may change over time as the proposals relate to turnover, that would be helpful in enabling us to see whether his assurances, which are honest and genuine, are correct. He differs from us in that he believes that the situation will be okay. In the meantime, my hon. Friends and I will give the matter further consideration and will seek to raise the issue on Report subject to that commitment. Will the Minister commit to provide that information?

Brandon Lewis: I am very happy to have a look at the matter and to come back to him. We may even be able to do that in writing before the next sitting. Whatever the outcome, however, the Government’s position will not change.

Andy Sawford: The Minister will want to achieve some measure of consensus as we go forward and will not want any more than I to divide the Committee unnecessarily.

Brandon Lewis: Inspiration has just come my way, so I will point out to the hon. Gentleman that he said on 5 November that
“an estimated 93% of such contracts would exceed the threshold and have to follow the EU procurement rules, which will clearly add substantial cost.”––[Official Report, Local Audit and Accountability Public Bill Committee, 5 November 2013; c. 9.]
We can obviously check that at our end as well.

Andy Sawford: I thank the Minister for that clarification. I recall making the point in relation to the costs of EU procurement exercises and the need for the national procurement arrangements, which are the subjects of the remainder of this debate and the other amendments. In deciding whether to bring the matter back on Report, we will consider what that 7% looks like, who it includes and what the risks are.
With that, and noting my hon. Friends’ strong concerns, I will not press amendments 92 and 93 to a Division, because I can see that new clause 1 seeks to achieve what we sought in amendment 93. Although I do not feel able to encourage my hon. Friends to support new clause 1—I want to hear a little more from the Local Government Association before Report—we shall certainly not oppose it, because we understand the Government’s intention. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7, as amended, ordered to stand part of the Bill.

Schedule 3

Amendment made: 15,page38,line21 [Schedule 3], at end insert—
‘(4) A local auditor appointed to audit the accounts of a parish meeting must be appointed by the parish meeting itself (and not by its chairman on behalf of the parish meeting).’.—(Brandon Lewis.)

Schedule 3, as amended, agreed to.

Clause 8  - Procedure for appointment

Andy Sawford: I beg to move amendment 96, in clause8,page6,line20,at end insert—
‘(1A) A relevant authority must have an audit committee, which may be instructed by the relevant authority to appoint the auditor panel to advise on the selection of the local auditor in accordance with section (7).’.

Edward Leigh: With this it will be convenient to discuss the following:
Amendment 97, in clause8,page6,line26,at end insert
‘and the term of appointment’.
Amendment 98, in clause8,page6,line33,leave out paragraph (b).
Amendment 99, in clause8,page6,line34,leave out subsection (4).

Andy Sawford: I hope that we can bring some unanimity to the Committee on amendment 96, which would require authorities to have an audit committee. In the past the Government have not wanted to impose on local authorities a duty to have such a committee. However, they have recognised—I know that the Minister would agree, and so would the hon. Member for Burton—that many local authorities have such committees, which play an important role.
Many local authorities have a process of independent audit, which is the Minister’s preferred option, and we are now entering a new, post-Audit Commission world. We have tabled a sensible small amendment, which would affect only a small number of authorities. It would require them to have an audit committee, which would fulfil a vital function.
I understand that 90% of local authorities have audit committees. Crucially, the overwhelming majority of those are set up in accordance with, and follow, guidance from the CIPFA framework.
Audit committees play a vital role in good corporate governance, because they bring an objective, independent appraisal of how effectively an organisation achieves regularity, probity and value for money. Local government councillors and officers have onerous and important financial and legal responsibilities—the hon. Member for Burton commented on that a moment ago, before he left the Room. The audit committee provides a key source of assurance that those responsibilities have been met.
The increasing prominence of audit committees in both public and private sectors reflects the pivotal role of audit for corporate governance. The CIPFA framework that I have mentioned, “Corporate Governance: A Framework for Public Service Bodies” recommends that all public service bodies should establish an audit committee comprising non-executive members with responsibility for the independent review of the systems of internal control and the external audit process.
The CIPFA guidelines state that the purpose of an audit committee is to provide independent assurance on the adequacy of the risk management framework and the associated control environment, and independent scrutiny of the organisation’s financial and non-financial performance to the extent that it affects exposure to risk and weakens the control environment, and to oversee the financial reporting process.
In some ways our amendment follows on from the debate we just had about the assurance that we can have about how systems operate in local authorities. I imagine that my hon. Friends who spoke so strongly would agree that audit committees are just one part—aside from our amendment on limiting terms of appointment—of the assurance that there could be about independence in a local authority, and suitable checks, balances and controls.
I will list the core functions of audit committees because I hope that the Minister will support the amendment, and that we may be able to agree or work together on a new clause to define, in brief, their core role. I hope that if I set out the core functions he will understand what we intend in relation to what the committees already do in most local authorities, and what new ones will do in the few that do not currently have them.
Audit committees would consider the effectiveness of the authority’s risk management arrangements, the control environment and associated anti-fraud and anti-corruption arrangements. My hon. Friend the Member for Derby North mentioned those things in relation to the excellent report by Transparency International.
An audit committee would seek assurances that action is being taken on risk-related issues identified by auditors and inspectors; it would be satisfied that the authority’s assurance statements, including the annual governance statement and audit opinion, properly reflect the risk environment and any actions required to improve it; it would approve but not direct—that is a crucial point—the internal audit strategy; and it would plan and monitor performance. We know from the evidence given to the inquiries by the Communities and Local Government Committee and the ad hoc Committee that internal audit is growing in importance in local authorities around the country, and I think we can all see that that is a positive development. Approval and monitoring of performance would be important functions of an audit committee.
The audit committee would review summary internal audit reports and the main issues that arise from them, and seek assurance that action has been taken where necessary. Because they are concerned about the operation of their local authorities, the Minister and all Committee members, along with the independent audit panel, the auditors themselves, the finance officers or others working in audit and corporate governance, should all take great comfort from and support the fact that audit committees would—if I can use a colloquialism—have some clout in authorities to ensure that their reports and recommendations were acted upon.
The committee would receive the annual report of the head of internal audit. It would consider the reports of external audit and inspection agencies. Although in the arrangements under the Bill, the independent audit panel will have a role in appointing the auditor, its role is largely limited to that, and rightly so when we consider the level of bureaucracy involved. We must recognise that the panel has a very limited role. In a local authority, it is necessary to have day-to-day assurance that money is being spent well, that there is value for money, and that there is probity and independence in the use of money. In the increasingly complex world about which my hon. Friends have spoken—including my hon. Friend the Member for City of Durham, who spoke about local enterprise partnerships on Tuesday—the assurance that audit committees could give the public is important.
Audit committees would ensure that there are effective relationships between external and internal audit. They would also ensure that the working relationship between private sector auditors and, we hope, new firms at least every five years—ideally every 10 years—is working well and that the value of the audit process is actively promoted. Crucially, audit committees would review the financial statements, the external auditor’s opinion and reports to members, and monitor management action in response to the issues raised by external audit.
A small number of authorities do not currently have a committee. Of course, some have something that looks like an audit committee, but is called something else and sits as a sub-committee or panel of the authority, and they may simply be able to think about how it applies the CIPFA rules and re-recognise it as their audit committee. However, without the Audit Commission, in authorities without the effective functioning of an audit committee, all the important roles I have just outlined are essentially left to the full council. They are left to the general assembly of the council, the agendas of which are often packed—I know that from real world experience as, like many Members, I have been a councillor.

James Morris: A quick point of clarification on the wording of the amendment, which says:
“A relevant authority must have an audit committee, which may be instructed…to appoint the auditor panel”.
Why did the hon. Gentleman choose the word “may,” and what are its implications?

Andy Sawford: There are two reasons for the use of the word “may.” The first is that I am a localist, as the hon. Gentleman knows, and I do not wish to impose on an audit committee a new role or burden that it does not wish to take on or see as its core function. Secondly, audit committees will of course take various forms. I do not intend to be too prescriptive, which is why I recommend that if we allow for a new measure that sets out some of the core roles of an audit committee, it is not overly prescriptive—for example, it must not require the committee to appoint the independent members of the audit panel.
However, I also anticipate that the Minister might argue, in the spirit of how he and his officials have constructed the new arrangements, that independent appointments must be made by the full council. I can understand that argument, but we would seek to give the flexibility for the full council to delegate responsibility for the detailed work of independent appointment if it considered it appropriate.

Neil Carmichael: Is the hon. Gentleman’s proposal not just a bit too prescriptive, especially bearing in mind the fact that some authorities may simply be too small to justify a full audit committee?

Andy Sawford: The role of the audit committee should be proportionate, as is the whole process of audit. Proportionality is a core principle. The audit committee may meet more frequently and include more members—the CIPFA guidelines are very broad and membership can range from three to 17. In a small authority, we might envisage a committee of three that meets quarterly and concerns itself with expenditure of £10 million of public money, and therefore that is not too onerous. As opposed to that, the audit committee in a large authority, spending hundreds of millions of pounds of public money, may meet more regularly and have more members to undertake a wider role in the local authority.
We deliberately intend not to be too prescriptive—I understand where the hon. Member for Stroud is coming from. Instead we are saying that this is good practice, recognised by CIPFA and doubtless by most of the local authorities represented by Government Members as well as those represented by my hon. Friends. Therefore, at a time when we are reviewing audit arrangements in local government and across relevant authorities, it is a sensible amendment to make. It reflects customer practice across the country, but addresses a tiny number of councils—about 10% —that do not currently have audit committees.
When I say tiny, we have to reflect on the fact that we are still talking about hundreds of millions of pounds of public money that is not in any way accounted for through an audit committee. Therefore we should be concerned about what internal controls there are. The amendment seeks to ensure that, in those cases, they catch up with good practice and do something that links well with establishing, for example, an independent audit panel and having a new process of independent audit.
Audit committees are good practice in the private sector and most charitable organisations have them. I looked at some research on this by the Charity Commission and it includes very small organisations. Bearing in mind that local authorities with responsibility for more than £6.5 million are required under the Bill have to have the full audit, we would not call any of them small in terms of the amount of public money for which they are responsible.
If the hon. Member for Stroud and other hon. Members are minded to support the amendment, we could debate how prescriptive to be and what level of prescription is desirable. The characteristics would be: a strong chair displaying a depth of skills and interests and, I am sure, an intolerance of phrases like “chucking the baby out with the bathwater”.

Edward Leigh: Absolutely.

Andy Sawford: They do not always add to debate. The characteristics would also include: unbiased attitudes, again displayed by Sir Edward today; treating auditors, the executive and the management equally; the ability to challenge the executive when required; and membership of the audit committee that is balanced, objective, independent of mind and knowledgeable.
One thing about audit committees that we should recognise and cherish in local government is that they always work most effectively on an apolitical basis. They are a little oasis of joint working in local authorities, where members come together, leave their party cards at the door and concern themselves with ensuring that public money is spent well.

James Morris: The hon. Gentleman is generous in giving way. Linking back to the debate on new clause 1, does he envisage that, in the instance where the authority was considering opting into the collective procurement arrangement, the audit committee would have power to make that decision? Would it be the decision-making body for opting into this collective procurement arrangement, or does he have other arrangements in mind?

Andy Sawford: The hon. Gentleman makes an important and interesting point about the remit of the audit committee within the authority in relation to the new arrangements. However, this relates to my answer to his point that a local authority may delegate to its audit committee the role of appointing the independent panel. It may also delegate to its audit committee the role, for example, of considering in the first instance whether to use a national procurement option or an independent panel, and of considering the relative merits of those two different arrangements. It could also do so in greater detail and doubtless with more expertise than if this matter were considered at a local authority’s general assembly or full council meeting.
So while we would not wish to be prescriptive and would rather leave the delegation of this role to local authorities, I can well imagine them thinking that it makes sense to delegate some of these matters to their audit committee. However, part of the audit committee’s corporate governance function is to see that important delegations, including those that relate to the audit process, are carried out effectively with effective reporting back to the full council or general assembly. In the spirit of localism that the hon. Member for Halesowen and Rowley Regis and I always embrace, I suggest that we be not too prescriptive but allow local authorities the opportunity—through the audit committee that they would all have if the Minister supported our amendment—to make decisions on the best arrangements.
I had more to say on the role of audit committees, but I sense that we have explored that point well. We are absolutely clear that local circumstances must determine the most appropriate structure and membership of any committee. Research shows that the most effective audit committees have chairs with strong leadership qualities. Often, local authorities choose to have an opposition member chair the audit committee, which is usually good practice in the scrutiny process. However, circumstances vary across the country and local authorities cannot always neatly determine which opposition member might take that role, save to say the chair of the audit committee and its members will play a vital role in bringing some independence and assurance to both the local authority and the auditors.
The group contains several other amendments—97, 98 and 99—that I wish to deal with briefly. The hon. Member for Halesowen and Rowley Regis made the point about not wishing to be too prescriptive only a moment ago, as did the hon. Member for Stroud. I therefore hope that I will have their full support for this. The amendments deal with the unnecessary prescription in the Bill on public appointment; in particular, for setting out notices about public appointment.
We do not think that the Secretary of State should take on the role he seems to want of being the public relations officer-in-chief for all local government and determine the best way to notify the public how a council operates. The way a local authority determines is best to inform the public of its appointment of an auditor is clearly a matter of common sense and local circumstance. That is subject to some minimum requirements, which are recorded in the clause, and that is why we seek not to delete the clause entirely, but to make sensible amendments to it.
We hope to add to transparency through amendment 97, which would provide that the notice must state the term of appointment. That relates very much to our earlier amendment on the competitive nature of the market and the need for appointments to be renewed periodically. We want to ensure, subject to a European procurement rules exercise, that if an authority chose to appoint independent auditors directly rather than through the national procurement option, auditors who may wish to seek that contract know the year in which the appointment needs to be renewed well in advance. We suggest that the Government should see a requirement to state the term of appointment as a sensible, small amendment.
Amendment 98 would omit those overly prescriptive aspects of the clause.

James Morris: I am surprised by the hon. Gentleman’s position on the 28-day notice period. He has expressed concerns about probity and ensuring accountability, but is it not right to have some stipulation of the length of time an authority should take to publish information that is vital to local accountability and probity, as he said earlier?

Andy Sawford: Again, the hon. Gentleman is absolutely right. That is why we have not sought to remove the 28-day requirement and rather seek to strengthen it through notifying the public of the term of appointment, but then removing some of the prescription around how the council will communicate with the public. Local authorities do not need the Secretary of State to be their PR officer. They know the nature of their communities and how best to communicate with them and can make such judgments perfectly well for themselves

Mary Glindon: It is a pleasure to serve under your chairmanship, Sir Edward.
I want briefly to emphasise the value of audit committees. Several years ago, North Tyneside had an audit committee, but the elected mayor—North Tyneside has had an elected mayor for many years—and people from the same party served on it. That probably is not the best way to set up such a committee, but, following the council’s own decision, it evolved to include members of all parties on the council. It has now progressed further and has an independent chair and an independent deputy. It does all the things that my hon. Friend the Member for Corby says. The committee’s minutes are published on the council’s website, ensuring transparency. Importantly, North Tyneside and Northumberland now share an internal audit and risk management service, which is a cost-saver, but both councils still have independent committees.

Mark Pawsey: The hon. Lady and I both sit on the Select Committee on Communities and Local Government, but audit committees were investigated by the Committee before the hon. Lady joined. One of the Select Committee’s recommendations was that an audit committee should have a majority of independent members. Does the council to which she refers have such a majority? Should there be such a majority?

Mary Glindon: North Tyneside is evolving and has reached the stage where there is an independent chair and deputy chair. While transparency has seemed sufficient to date, the council wants to increase it and that is a good step. The committee is evolving and it is important to show that it is relevant and that it has responded to changes over the years. It may end up being totally independent, but, for now, the transparency that they are working towards is always assured. As my hon. Friend the Member for Corby said, we are not prescribing how the committee should be formed, but I wanted to demonstrate how an audit committee can move with the times and become a really important part of the transparency and accountability of every council.

Chris Williamson: I concur absolutely with my hon. Friend on the role and importance of audit committees. When my hon. Friend the shadow Minister was speaking, I randomly decided to look at the agenda for Derby city council’s audit committee and noted the range of topics that it considers. On 26 June 2013, it was looking at the council’s covert surveillance policy and procedures, the annual governance statement, the anti-fraud and anti-corruption policy and strategy, “Fighting Fraud Locally: The Local Government Fraud Strategy” and a range of other important topics. I mentioned checks and balances earlier and, as my hon. Friend the Member for Corby suggested, the audit committee provides an additional source of checks and balances in each local authority. It would be remiss of us to allow residents who live under a local authority that does not have an audit committee to be denied that additional comfort blanket without challenge and without ensuring that an audit committee is put in place. I have quoted at length from Transparency International, but it makes an interesting observation about such committees:
“Audit committees should be committees of the main council, reporting directly into full council to ensure maximum scrutiny and accountability of audit findings and recommendations.”
That is clearly sensible advice.
The fact that some local authorities have no audit committee at all—let alone as a committee of the main council—is less than satisfactory, so it is therefore appropriate to support the amendment and I hope that the Government will take it on board. It in no way impinges upon localism. In fact, it is about enabling localism and ensuring that local people have that additional assurance available to them through the added scrutiny that can be brought to bear by an audit committee. On that basis, I hope that we can, as my hon. Friend the Member for Corby suggested, find some unanimity at least on this issue and move forward in a spirit of consensus.

The Chair adjourned the Committee without Question put (Standing Order No. 88.)

Adjourned till this day at Two o’clock.